Asbetgeri
Engineer B Ecivil Mba (ph D)
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what should be financial ratios for healthy business. how it helps in viewing the business capabilities.
Financial ratios are important for bankers to analyse. but question is what is healthy ratio.
Hi,
There are many ratios, which are used to see how the business is healthy in terms of many ways..............
Like,
1.Debt Equity ratio shows how much finance is required to the company & 2:1 is the best
2.Debt service Coverage ratio: It shows how the business repay bank loan and interest, and or operating expenses of the business. DSCR: 1.7 means, the company atleast repay bank loan. And 2.1 means the business is very healthy by all means.
I think this will be sufficient to know whether the business is healthy or not.

The accounting ratio is statistical yard stick to measure relationship between two accounting figures.It is usually used to analyse the trend of the business, and it is very benefited to the investor,and supplier.The investor decided to invest or not invest on the analyses of accounting ratio.Accounting ratio is calculated on the basis of balance sheet, profit and loss account, balance sheet & profit and loss account.Working capital ratio or current ratio, Liquid ratio or quick ratio or acid test ratio, Return on proprietary fund ratio, Proprietor fund ratio is calculated on the basis of balance sheet. Gross profit ratio, Net profit ratio,Expenses ratio,inventory ratio,operating ratio are calculated on the basis of profit and loss account.Return on capital ratio, Return on total resources ratio, turnover of fixed assets ratio, Debtor ratio, Creditor ratio , are calculated on the basis balance sheet and profit and loss account
C A K C AGARWAL, ALLAHABAD

If opening stock $ 3000 closing stock $ 5000, sales $ 40000 and margin 20% then stock turn will be ?????
Accounting Ratios do not form ultimate analytical parameters; they are a few among the analytical tools.To know how healthy is the business, it is always prudent to look into the details notes forming part of the audited accounts.What are not disclosed are as important as what are disclosed
Regards
M.Rajkumar
Management Consultant

4 ways to assess your business performance using financial ratios
One way to analyze your financial health and identify how it might be improved is by looking closely at your financial ratios. Ratios are used to make comparisons between different aspects of a company's performance or how the company stacks up within a particular industry or region. They reveal very basic information such as whether you have accumulated too much debt, stockpiled too much inventory or are not collecting receivables fast enough.
Liquidity ratios
These measure the amount of liquidity (cash and easily converted assets) that you have to cover your debts, and provide a broad overview of your financial health.
It measures your company's ability to generate cash to meet your short-term financial commitments. Also called the working capital ratio, it is calculated by dividing your current assets—such as cash, inventory and receivables—by your current liabilities, such as line of credit balance, payables and current portion of long term debts
Efficiency ratios
Often measured over a 3- to 5-year period, these give additional insight into areas of your business such as collections, cash flow and operational results. Assessing your inventory turnover is important because gross profit is earned each time such turnover occurs. This ratio can enable you to see where you might improve your buying practices and inventory management. For example, you could analyze your purchasing patterns as well as your clients to determine ways to minimize the amount of inventory on hand.
Profitability ratios
These ratios are used not only to evaluate the financial viability of your business, but are essential in comparing your business to others in your industry. You can also look for trends in your company by comparing the ratios over a certain number of years.
Leverage ratios
These ratios provide an indication of the long-term solvency of a company and to what extent you are using long-term debt to support your business.
Accessing and calculating ratios
To determine your ratios, you can use a variety of online tools such as BDC's ratio calculators although your financial advisor, accountant and banker may already have the most currently used ratios on hand.

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